Investors Wary of History Repeating Itself in Thai Coup

by Kathy Jones on Jun 8 2014 10:20 PM

 Investors Wary of History Repeating Itself in Thai Coup
Investors hope that Thai military generals have learnt their lessons from the last coup and avoid imposing draconian capital controls that triggered the stock market crash in the country.
Markets have largely taken May's military takeover in their stride, but there is still nervousness about a regime that has put the air force chief in charge of the economy and appointed the navy commander to oversee tourism.

Experts say the last putsch, in 2006, showed that soldiers lack the expertise to run Southeast Asia's second-largest economy.

"The military government struggled to manage the economy, reflecting the lack of technocratic skills in economic management and administration," recalled Rajiv Biswas, chief Asia economist at the IHS consultancy firm.

The regime was also unable to move ahead with significant reforms because of its caretaker status, he added.

After the 2006 coup, markets were particularly frightened by drastic foreign capital controls introduced several months later to try to curb the rise of the baht, noted Ryan Aherin, Asia analyst at risk advisory company Maplecroft.

"The measure was very unpopular with investors, he said.

The Thai stock market suffered a plunge of 15 percent in just one day before authorities quickly backtracked.

The regime also briefly considered limiting foreign investment in businesses.

By the time it abandoned the idea, "investor sentiment had already plummeted due to fears of nationalistic policies", said Aherin.

So far, the Thai stock market is up about four percent since the May 22 coup, helped by buoyant global investment sentiment.

But Japan, Thailand's largest foreign investor, is watching events with trepidation.

Japanese auto giants Toyota, Honda and Nissan have invested heavily in Thailand, attracted by its skilled workforce and the ease of doing business.

- 'Economy needs oxygen' -

Even before the coup, Thailand's economy was reeling from nearly seven months of deadly street protests, which dented consumer confidence and scared off foreign tourists.

The economy shrank 2.1 percent quarter-on-quarter in the first three months of 2014, according to an official estimate. The fear is that it will contract again in the second quarter, sliding into recession.

"The economy is like a dying person -- it's sick so it needs oxygen," said Tanit Sorat, vice chairman of the Federation of Thai Industries (FTI).

Thai consumers appear relieved that the military takeover has, for now at least, brought a halt to the bloody political unrest.

Consumer confidence rose in May for the first time in 14 months, according to the University of the Thai Chamber of Commerce.

But the government expects economic growth of just 1.5-2.5 percent for 2014, against a previous forecast of 3-4 percent.

Thailand now faces structural issues such as growing regional competition and delays in public infrastructure investments, said Steffen Dyck, analyst at Moody's Investors Service.

After the last coup a strong global economy helped Thailand to post robust economic growth of about five percent in both 2006 and 2007, he noted.

Seemingly aware of the investor nervousness, the junta has quickly invited various economic actors to make proposals for a "roadmap" out of the latest crisis.

"Using absolute power to solve economic, financial and fiscal problems is dangerous in the long run," army commander-in-chief Prayut Chan-O-Cha acknowledged in his weekly address to the nation on Friday.

To get the economy moving again, the junta has pledged support for small and mid-sized firms, as well as tax reform and the creation of special economic zones on the country's borders.

It is also reviewing infrastructure projects begun by the ousted government of former premier Yingluck Shinawatra, which was accused by its critics of cronyism and corruption.

But so far the army's only concrete measure on the economy has been unblocking $2.8 billion for farmers under Yingluck's loss-making rice price guarantee scheme.

Thailand's long-running crisis broadly pits Yingluck's elder brother Thaksin -- a billionaire tycoon-turned politician toppled in the 2006 coup -- against a royalist establishment backed by parts of the military and judiciary.

While the country has earned the nickname "Teflon Thailand" for its record of bouncing back from past episodes of political turmoil, experts say the current bout of uncertainty will inevitably have an impact.

"The biggest worry for investors is that long term-instability will result in inconsistent economic policies," said Aherin.

"While investors are not likely to pull out of Thailand at this point, they may hold off on starting any new investment in the country until there are elections and signs of longer-term stability."